Residential property sales prices in Dubai rose by about 18 per cent in the first quarter of 2013 compared to the year earlier period even as 2,200 units were added to the stock inventory amid rising investor confidence and stronger macroeconomic fundamentals, Jones Lang LaSalle said on Sunday.

Dubai apartment prices were up 18 per cent and villa prices by 17 per cent in the first quarter, according to the REIDIN general Residential Sale Index.

“For the first time since 2008, all sectors of the Dubai real estate market are positioned in the recovery stage of their market cycle as positive performance remained largely concentrated in the best quality projects in prime locations with secondary locations and poor quality projects continuing to experience high vacancy rates and stable or even falling rental values, Jones Lang LaSalle said in its first quarter 2013 market report.

The report noted that the real estate investment market in Dubai, which now has a residential stock of 357,000, became very active in the first quarter of 2013 with a growing number of residential transactions closing. Over the next two years — 2013-2015, the residential supply will grow by 42,000 units. In 2013, Dubai will add a total of 28,000 units, the report said.

Rents for apartments and villas that rose by 10 per cent in the first quarter are likely to surge further in 2013. “While the villa rental index has achieved its peak value in February 2013, the apartment rental index remained 26 per cent lower than in January 2009. Rentals have increased in the most sought after areas such as Burj Downtown, Dubai Marina and Palm Jumeirah while remaining stable in secondary and less completed locations.While well established residential communities in central Dubai are expected to see further price and rental growth over the rest of 2013, less completed projects in more remote areas will need more time before seeing increased demand and performance,” the JLL report said. Dubai’s commercial sector also experienced an upturn with rents for prime office space starting to recover with the “flight to quality” remaining a key trend.

While the retail market continued to be dominated by the best performing super-regional malls, the hotel sector maintained its strong performance supported by a growing number of tourist arrivals in Dubai as the industrial sector started moving more towards newer areas. “Hotel occupancy rates have been rising to 86 per cent while Average Daily Rates reached $276. This positive trend is expected to continue throughout 2013,” it said.

“For some months now, we have seen sustained confidence in the Dubai real estate market, although it remains selective with the best performance focused on high quality assets in prime locations,” said Alan Robertson, CEO of Jones Lang LaSalle, Middle East & North Africa.

“An initial glance might suggest that many of the conditions that led to the unsustainable growth in real estate prices in Dubai in 2006 and 2007 have returned. However, there are important differences as the Dubai market has matured. The excesses of the last speculative boom will hopefully be replaced by a period of slower but more sustained growth in demand and prices. The challenge is to ensure that this confidence does not lead to undue exuberance. If the market has learnt anything from the past decade, it is that an extended period of sustained growth is far more beneficial than a short period of unsustainable growth followed by an inevitable crash,” he said.

JLL said in its review that the Dubai economy is expected to sustain its growth momentum. According to the Department of Economic Development, the Gross Domestic Product of Dubai will grow by more than four per cent in 2013. Tourism, trade, transportation and logistics are all witnessing strong performance, while construction and real estate have started to show encouraging signs of recovery. “The business outlook of Dubai is looking brighter as macroeconomic fundamentals are stronger and investor confidence is rising. This positive outlook has been reflected in the Department of Economic Development’s Business Confidence Index, which reached 135.9 points in the last quarter-2012, up 11 per cent compared to the previous quarter,” the report said.

“The Dubai economy is expected to sustain its growth momentum as macroeconomic fundamentals are stronger than they have been since the start of the global financial crisis. Dubai could even benefit from the continued uncertainties in the Eurozone which may lead to a transfer of capital into the Dubai real estate market, given its safe haven status and attractiveness to offshore investors,” said Craig Plumb, Head of Research for Jones Lang LaSalle in MENA.

On the development side, the new projects being launched are as ambitious as ever, he said. “We are however seeing signs of a more considered and targeted approach which is only going to benefit the long term health and credibility of the real estate sector. The key to the success of individual projects and the future performance of the overall market will be the adoption of a realistic phasing strategy in line with market demand.”

Plumb noted that demand is generally picking up and the best quality products are driving the continued improvements in performance that we are seeing across the residential, office and retail sectors. For these properties we would expect to see further price and rental growth over the rest of 2013.

“However lower quality space in secondary locations will continue to struggle with the continued legacy of oversupply and high vacancy.”